The "crowding-out" critique is based on the idea that
A) consumption increases when government spending increases.
B) government spending may be a substitute for private spending.
C) time lags crowd out the effects of fiscal policy.
D) supply-side fiscal policy does not increase total output.
E) increases in government spending and decreases in taxes are offset by increases in savings.

Question

Quizplus · Accepted Answer

The "crowding-out" critique suggests that government spending may be a substitute for private spending, meaning that when the government spends more money, it may lead to reduced spending by individuals or businesses. This can occur due to higher interest rates caused by increased government borrowing, which can make it more expensive for individuals and businesses to borrow money for their own spending. Therefore, the best choice is B.

The "Crowding-Out" Critique Is Based on the Idea That